United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20222023
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___ to ___
Commission File No: 0-11740
MESA LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Colorado | 84-0872291 | |||
(State or other jurisdiction of | (I.R.S. Employer | |||
incorporation or organization) | Identification number) | |||
12100 West Sixth Avenue | ||||
Lakewood, Colorado | 80228 | |||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (303) 987-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name on each exchange on which registered |
Common Stock, no par value | MLAB | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date:
There were 5,317,2705,384,291 shares of the Issuer’s common stock, no par value, outstanding as of July 28, 2022.27, 2023.
1 | ||
1 | ||
1 | ||
2 | ||
Condensed Consolidated Statements of Comprehensive (Loss) | 3 | |
Condensed Consolidated Statements of | 4 | |
Condensed Consolidated Statements of | 5 | |
6 | ||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
Item 3. Quantitative and Qualitative Disclosures about Market Risk | ||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | ||
Item 5. Other Information | 20 | |
Exhibit 31.1 Certifications Pursuant to Rule 13a-14(a) | ||
Exhibit 31.2 Certifications Pursuant to Rule 13a-14(a) | ||
Exhibit 32.1 Certifications Pursuant to Rule 13a-14(b) and 18 U.S.C Section 1350 | ||
Exhibit 32.2 Certifications Pursuant to Rule 13a-14(b) and 18 U.S.C Section 1350 |
Condensed Consolidated Balance Sheets
(unaudited)
(dollars in thousands, except share amounts)
June 30, | March 31, | June 30, | March 31, | |||||||||||||
2022 | 2022 | 2023 | 2023 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 43,747 | $ | 49,346 | $ | 32,376 | $ | 32,910 | ||||||||
Accounts receivable, less allowances of $1,035 and $630, respectively | 41,840 | 41,224 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $964 and $849, respectively | 35,595 | 42,551 | ||||||||||||||
Inventories | 26,874 | 24,606 | 35,559 | 34,642 | ||||||||||||
Prepaid expenses and other | 15,666 | 9,142 | 11,278 | 8,872 | ||||||||||||
Total current assets | 128,127 | 124,318 | 114,808 | 118,975 | ||||||||||||
Property, plant and equipment, net of accumulated depreciation of $18,495 and $17,726 respectively | 28,006 | 28,620 | ||||||||||||||
Property, plant and equipment, net of accumulated depreciation of $20,478 and $19,768 respectively | 27,953 | 28,149 | ||||||||||||||
Deferred tax asset | 689 | 1,318 | 1,077 | 1,076 | ||||||||||||
Other assets | 10,424 | 11,830 | 9,623 | 10,373 | ||||||||||||
Intangibles, net | 235,000 | 250,117 | ||||||||||||||
Customer relationships, net | 142,515 | 152,189 | ||||||||||||||
Intellectual property, net | 45,287 | 46,400 | ||||||||||||||
Other intangibles, net | 17,592 | 18,226 | ||||||||||||||
Goodwill | 283,565 | 291,166 | 283,756 | 286,444 | ||||||||||||
Total assets | $ | 685,811 | $ | 707,369 | $ | 642,611 | $ | 661,832 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 7,557 | $ | 7,897 | $ | 5,588 | $ | 6,134 | ||||||||
Accrued payroll and benefits | 9,401 | 14,717 | 7,269 | 9,433 | ||||||||||||
Unearned revenues | 15,268 | 13,830 | 15,372 | 15,694 | ||||||||||||
Other accrued expenses | 11,901 | 11,611 | 10,897 | 12,098 | ||||||||||||
Total current liabilities | 44,127 | 48,055 | 39,126 | 43,359 | ||||||||||||
Deferred tax liability | 37,323 | 39,224 | 33,507 | 34,028 | ||||||||||||
Other long-term liabilities | 7,340 | 7,924 | 6,757 | 7,693 | ||||||||||||
Credit Facility | 47,000 | 49,000 | 5,000 | 13,000 | ||||||||||||
Convertible senior notes, net of discounts and debt issuance costs | 169,590 | 169,365 | 170,502 | 170,272 | ||||||||||||
Total liabilities | 305,380 | 313,568 | 254,892 | 268,352 | ||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock, no par value; authorized 25,000,000 shares; issued and outstanding, 5,297,308 and 5,265,627 shares, respectively | 318,328 | 313,460 | ||||||||||||||
Common stock, no par value; authorized 25,000,000 shares; issued and outstanding, 5,384,280 and 5,369,466 shares, respectively | 334,384 | 332,076 | ||||||||||||||
Retained earnings | 74,394 | 76,675 | 72,791 | 74,199 | ||||||||||||
Accumulated other comprehensive (loss) income | (12,291 | ) | 3,666 | |||||||||||||
Accumulated other comprehensive (loss) | (19,456 | ) | (12,795 | ) | ||||||||||||
Total stockholders’ equity | 380,431 | 393,801 | 387,719 | 393,480 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 685,811 | $ | 707,369 | $ | 642,611 | $ | 661,832 |
See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Revenues | $ | 50,453 | $ | 34,920 | $ | 50,645 | $ | 50,453 | ||||||||
Cost of revenues | 19,112 | 12,709 | 19,462 | 19,112 | ||||||||||||
Gross profit | 31,341 | 22,211 | 31,183 | 31,341 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling | 10,023 | 4,858 | 8,976 | 10,023 | ||||||||||||
General and administrative | 20,212 | 11,419 | 18,060 | 20,212 | ||||||||||||
Research and development | 5,700 | 2,811 | 4,811 | 5,700 | ||||||||||||
Total operating expenses | 35,935 | 19,088 | 31,847 | 35,935 | ||||||||||||
Operating (loss) income | (4,594 | ) | 3,123 | |||||||||||||
Nonoperating expense (income): | ||||||||||||||||
Operating (loss) | (664 | ) | (4,594 | ) | ||||||||||||
Nonoperating expense: | ||||||||||||||||
Interest expense and amortization of debt discount | 1,014 | 874 | 1,048 | 1,014 | ||||||||||||
Other (income) expense, net | (196 | ) | 831 | |||||||||||||
Total nonoperating expense | 818 | 1,705 | ||||||||||||||
(Loss) earnings before income taxes | (5,412 | ) | 1,418 | |||||||||||||
Other (income), net | (775 | ) | (196 | ) | ||||||||||||
Total nonoperating expense, net | 273 | 818 | ||||||||||||||
(Loss) before income taxes | (937 | ) | (5,412 | ) | ||||||||||||
Income tax (benefit) | (3,974 | ) | (577 | ) | (388 | ) | (3,974 | ) | ||||||||
Net (loss) income | $ | (1,438 | ) | $ | 1,995 | |||||||||||
Net (loss) | $ | (549 | ) | $ | (1,438 | ) | ||||||||||
(Loss) earnings per share: | ||||||||||||||||
Net (loss) per share: | ||||||||||||||||
Basic | $ | (0.27 | ) | $ | 0.39 | $ | (0.10 | ) | $ | (0.27 | ) | |||||
Diluted | $ | (0.27 | ) | $ | 0.38 | $ | (0.10 | ) | $ | (0.27 | ) | |||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 5,273 | 5,152 | 5,372 | 5,273 | ||||||||||||
Diluted | 5,273 | 5,301 | 5,372 | 5,273 |
See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
(in thousands)
Three Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Net (loss) income | $ | (1,438 | ) | $ | 1,995 | |||
Other comprehensive (loss) income: | ||||||||
Foreign currency translation adjustments | (15,957 | ) | 5,371 | |||||
Comprehensive (loss) income | $ | (17,395 | ) | $ | 7,366 |
Three Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Net (loss) | $ | (549 | ) | $ | (1,438 | ) | ||
Other comprehensive (loss): | ||||||||
Foreign currency translation adjustments | (6,661 | ) | (15,957 | ) | ||||
Comprehensive (loss) | $ | (7,210 | ) | $ | (17,395 | ) |
See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(dollars in thousands, except per share data)
Common Stock | ||||||||||||||||||||
Number of Shares | Amount | Retained Earnings | AOCI* | Total | ||||||||||||||||
March 31, 2023 | 5,369,466 | $ | 332,076 | $ | 74,199 | $ | (12,795 | ) | $ | 393,480 | ||||||||||
Exercise of stock options and vesting of restricted stock units | 20,074 | 52 | - | - | 52 | |||||||||||||||
Tax withholding on vesting of restricted stock units | (5,260 | ) | (712 | ) | - | - | (712 | ) | ||||||||||||
Dividends paid, $0.16 per share | - | - | (859 | ) | - | (859 | ) | |||||||||||||
Stock-based compensation expense | - | 2,968 | - | - | 2,968 | |||||||||||||||
Foreign currency translation | - | - | - | (6,661 | ) | (6,661 | ) | |||||||||||||
Net (loss) | - | - | (549 | ) | - | (549 | ) | |||||||||||||
June 30, 2023 | 5,384,280 | $ | 334,384 | $ | 72,791 | $ | (19,456 | ) | $ | 387,719 |
Common Stock | ||||||||||||||||||||
Number of Shares | Amount | Retained Earnings | AOCI* | Total | ||||||||||||||||
March 31, 2022 | 5,265,627 | $ | 313,460 | $ | 76,675 | $ | 3,666 | $ | 393,801 | |||||||||||
Exercise of stock options and vesting of restricted stock units | 31,690 | 1,438 | - | - | 1,438 | |||||||||||||||
Tax withholding on vesting of restricted stock units | (9 | ) | (2 | ) | - | - | (2 | ) | ||||||||||||
Dividends paid, $0.16 per share | - | - | (843 | ) | - | (843 | ) | |||||||||||||
Stock-based compensation expense | - | 3,432 | - | - | 3,432 | |||||||||||||||
Foreign currency translation | - | - | - | (15,957 | ) | (15,957 | ) | |||||||||||||
Net (loss) | - | - | (1,438 | ) | - | (1,438 | ) | |||||||||||||
June 30, 2022 | 5,297,308 | $ | 318,328 | $ | 74,394 | $ | (12,291 | ) | $ | 380,431 |
*Accumulated Other Comprehensive (Loss) Income.
See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net (loss) income | $ | (1,438 | ) | $ | 1,995 | |||||||||||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||||||||||
Net (loss) | $ | (549 | ) | $ | (1,438 | ) | ||||||||||
Adjustments to reconcile net income to net cash provided by operating (used in) activities: | ||||||||||||||||
Depreciation and amortization | 8,134 | 4,572 | 8,134 | 8,134 | ||||||||||||
Stock-based compensation expense | 3,432 | 2,197 | 2,968 | 3,432 | ||||||||||||
Non-cash interest and debt amortization | 225 | 221 | 230 | 225 | ||||||||||||
Deferred taxes | (908 | ) | ||||||||||||||
Other | (1,763 | ) | (826 | ) | 283 | (2,671 | ) | |||||||||
Cash (used in) provided by changes in operating assets and liabilities: | ||||||||||||||||
Cash provided by (used in) changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable, net | (1,484 | ) | 3,285 | 6,456 | (1,484 | ) | ||||||||||
Inventories | (2,732 | ) | (753 | ) | (1,244 | ) | (2,732 | ) | ||||||||
Prepaid expenses and other assets | (2,180 | ) | (1,631 | ) | (2,448 | ) | (2,180 | ) | ||||||||
Accounts payable | (205 | ) | (476 | ) | (539 | ) | (205 | ) | ||||||||
Accrued liabilities and taxes payable | (5,328 | ) | 867 | (3,217 | ) | (5,328 | ) | |||||||||
Unearned revenues | 1,436 | 138 | (135 | ) | 1,436 | |||||||||||
Net cash (used in) provided by operating activities | (2,811 | ) | 9,589 | |||||||||||||
Net cash provided by (used in) operating activities | 9,939 | (2,811 | ) | |||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property, plant and equipment | (225 | ) | (653 | ) | (270 | ) | (225 | ) | ||||||||
Net cash (used in) investing activities | (225 | ) | (653 | ) | (270 | ) | (225 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Payments of debt | (2,000 | ) | 0 | (8,000 | ) | (2,000 | ) | |||||||||
Dividends | (843 | ) | (824 | ) | (859 | ) | (843 | ) | ||||||||
Proceeds from the exercise of stock options | 1,436 | 1,089 | 52 | 1,438 | ||||||||||||
Net cash (used in) provided by financing activities | (1,407 | ) | 265 | |||||||||||||
Payment of tax withholding obligation on vesting of restricted stock | (712 | ) | (2 | ) | ||||||||||||
Net cash (used in) financing activities | (9,519 | ) | (1,407 | ) | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (1,156 | ) | 2,644 | (684 | ) | (1,156 | ) | |||||||||
Net (decrease) increase in cash and cash equivalents | (5,599 | ) | 11,845 | |||||||||||||
Net (decrease) in cash and cash equivalents | (534 | ) | (5,599 | ) | ||||||||||||
Cash and cash equivalents at beginning of period | 49,346 | 263,865 | 32,910 | 49,346 | ||||||||||||
Cash and cash equivalents at end of period | $ | 43,747 | $ | 275,710 | $ | 32,376 | $ | 43,747 |
See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(dollars in thousands, except per share data)
Common Stock | ||||||||||||||||||||
Number of Shares | Amount | Retained Earnings | AOCI* | Total | ||||||||||||||||
March 31, 2022 | 5,265,627 | $ | 313,460 | $ | 76,675 | $ | 3,666 | $ | 393,801 | |||||||||||
Exercise of stock options and vesting of restricted stock units | 31,681 | 1,436 | 0 | 0 | 1,436 | |||||||||||||||
Dividends paid, $0.16 per share | - | - | (843 | ) | - | (843 | ) | |||||||||||||
Stock-based compensation expense | - | 3,432 | - | - | 3,432 | |||||||||||||||
Foreign currency translation | - | - | - | (15,957 | ) | (15,957 | ) | |||||||||||||
Net (loss) | - | 0 | (1,438 | ) | 0 | (1,438 | ) | |||||||||||||
June 30, 2022 | 5,297,308 | $ | 318,328 | $ | 74,394 | $ | (12,291 | ) | $ | 380,431 |
Common Stock | ||||||||||||||||||||
Number of Shares | Amount | Retained Earnings | AOCI* | Total | ||||||||||||||||
March 31, 2021 | 5,140,568 | $ | 317,652 | $ | 72,459 | $ | 16,116 | $ | 406,227 | |||||||||||
Exercise of stock options and vesting of restricted stock units | 58,324 | 1,089 | 0 | 0 | 1,089 | |||||||||||||||
Dividends paid, $0.16 per share | - | - | (824 | ) | - | (824 | ) | |||||||||||||
Stock-based compensation expense | - | 2,197 | - | - | 2,197 | |||||||||||||||
Foreign currency translation | - | - | - | 5,371 | 5,371 | |||||||||||||||
Cumulative adjustment due to adoption of ASU No. 2020-06 | - | (22,735 | ) | 5,683 | - | (17,052 | ) | |||||||||||||
Net income | - | - | 1,995 | - | 1,995 | |||||||||||||||
June 30, 2021 | 5,198,892 | $ | 298,203 | $ | 79,313 | $ | 21,487 | $ | 399,003 |
*Accumulated Other Comprehensive (Loss) Income.
See accompanying notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollar and share amounts in thousands, unless otherwise specified)
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business
In this quarterly report on Form 10-Q, Mesa Laboratories, Inc., a Colorado corporation, together with its subsidiaries, is collectively referred to as “we,” “us,” “our,” the “Company”“Company,” or “Mesa.”
We are a multinational manufacturer, developer, and seller of life science tools and critical quality control products and services, many of which are sold into niche markets that are driven by regulatory requirements. We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe, and Asia Pacific, and by independent distributors in these areas as well as throughout the rest of the world. We prefer markets in which we can establish a strong presence and achieve high gross profit margins.
As of June 30, 2022, 2023, we managed our operations in four reportable segments, or divisions:
● | Sterilization and Disinfection Control - manufactures and sells biological, cleaning, and chemical indicators used to assess the effectiveness of sterilization and disinfection processes in the pharmaceutical, medical device, hospital, and dental industries. The division also provides testing and laboratory services, mainly to the dental industry. | |
● | Clinical Genomics - develops, manufactures and sells highly sensitive, low-cost, high-throughput genetic analysis tools | |
|
|
● | Biopharmaceutical Development - develops, manufactures, and sells automated systems for protein analysis (immunoassays) and peptide synthesis solutions. Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacture of biotherapeutic |
● | Calibration Solutions - develops, manufactures and sells quality control |
Non-reportable operating segments and unallocatedUnallocated corporate expenses are reported within Corporate and Other.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission.information. In the opinion of management, such unaudited information includes all adjustments, consisting of normal recurring adjustments necessary for the fair statement of our financial position and results of operations. The results of operations for the interim periods are not necessarily indicative of results that may be achieved for the entire year. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. We made no material changes to the application of our significant accounting policies that were disclosed in our Form 10-K. This quarterly report should be read in conjunction with the consolidated financial statements included in our annual report on Form 10-K for the year ended March 31, 20222023.
Certain prior year amounts have been reclassified in order to conform to the current year presentation.
Our fiscal year ends on March 31. References in this Quarterly Report to a particular “year” or “year-end” mean“quarter” refer to our fiscal year and references to the first quarter ofor fiscal year 2023 refer to the period from April 1, 2022 through June 30, 2022. References to “fiscal year 2022” refer to the fiscal year ended March 31, 2022, and to “fiscal year 2023” refer to the fiscal year ending March 31, 2023.quarters, respectively.
Prior Period ReclassificationReclassifications
Certain prior year amounts presented in Note 3. "Revenue Recognition" in prior periods of fiscal year 2022 have been reclassified out of revenues from consumables and into revenues from hardware and services. Theseto conform with current presentation. The reclassifications have not resulted in any changechanges to consolidated or segment amounts reported in the Condensed Consolidated Financial Statements for theany periods presented in this Form three10 months ended June 30, 2022 and 2021.-Q.
Risks and Uncertainties
The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the reporting date and revenues and expenses during the reporting periods. These estimates represent management's judgementjudgment about the outcome of future events. Our estimates include, among others, asset reserve requirements as well asThe global business environment continues to be impacted by cost pressure, the amountsoverall effects of future cash flows associated with certain assetsthe current high inflation environment on customers' purchasing patterns, high interest rates, the conflict in Ukraine, and businesses that are used in assessing the risk of impairment. The negative impacts associated with the ongoing novel coronavirus ("COVID-other factors. It is 19") global pandemic significantly lessened during fiscal year 2022.not The extent and duration of negative impacts inpossible to accurately predict the future which may include inflationary pressuresimpact of such events and supply chain disruptions, are uncertain and may require changes to estimates.circumstances. Actual results could differ from thoseour estimates.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued accounting pronouncements and have concluded that they are either not applicable to us or are not expected to have a significant impact on our consolidated financial statements.
Note 2. Significant Transactions
Acquisition of Agena Bioscience, Inc.Belyntic GmbH
On October 20, 2021,November 17, 2022, we completedacquired substantially all of the acquisitionassets and certain liabilities of Agena Bioscience, Inc.Belyntic GmbH’s peptide purification business (“Agena”the Belyntic acquisition”) for $300,793, net$6,450, of cash acquired but inclusivewhich $4,950 was paid on the date of working capital adjustments (the “Agena Acquisition”).acquisition. The Agena Acquisition aligned withremaining $1,500 will be paid upon the approval of pending patent applications. The business complements our overall acquisition strategy, moved ourexisting peptide synthesis business, towards the life sciences tools sector, and expanded our market opportunities, particularly in Asia. Agena is a leading clinical genomics tools company that develops, manufactures, markets, and supports proprietary instruments and related consumables and services that enable genetic analysis for a broad range of diagnostic and research applications. Using Agena's MassARRAY® instruments and chemical reagent solutions, customers can analyze DNA samples for a variety of high volume clinical testing applications, such as inherited genetic disease testing, pharmacogenetics, various oncology tests, infectious disease testing, and other highly-differentiated applications.
We funded the acquisition and transactions relating thereto with cash on hand and borrowings under the Credit Facility (as defined below). Of the cash consideration we paid, approximately $267,000 represented cash consideration to holders of Agena’s preferred and common stock, approximately $2,000 represented cash consideration paid for the settlement of Agena’s warrants, and approximately $31,800 represented cash consideration for the settlement of Agena's vested stock options aspart of the closing date.
Agena Preliminary Purchase Price AllocationBiopharmaceutical Development segment, by adding a new consumables line. The new PurePep® EasyClean products are a green chemistry solution to purify peptides.
During thefiscal year three2023 months ended June 30, 2022, ,we continued analysesprepared a preliminary analysis of the valuation of net assets acquired in the Agena Acquisition. ThisBelyntic acquisition. During the three months ended June 30, 2023, based on detailed financial analysis of the financial model, we recorded measurement period adjustments to reclassify amounts from intangible assets into goodwill. Our preliminary purchase price allocation is subject to further revision as more detailed analyses are completed with respect to prepaid taxes, tax accruals, and deferred tax positions.
The following table summarizes the allocation of the preliminary purchase price as of October 20, 2021:
Life (in years) | Amount | ||||||
Cash and cash equivalents | $ | 7,544 | |||||
Accounts receivable | 11,100 | ||||||
Other current assets | 25,480 | ||||||
Total current assets | 44,124 | ||||||
Property, plant and equipment/noncurrent assets | 15,832 | ||||||
Deferred tax asset | 811 | ||||||
Intangible assets: | |||||||
Goodwill | N/A | 135,880 | |||||
Customer relationships | 12 | 103,800 | |||||
Intellectual property | 8 | 45,400 | |||||
Tradenames | 12 | 15,700 | |||||
Total Assets acquired | $ | 361,547 | |||||
Accounts payable | 2,174 | ||||||
Unearned revenues | 2,713 | ||||||
Other current liabilities | 12,295 | ||||||
Total current liabilities | 17,182 | ||||||
Deferred tax liability | 27,765 | ||||||
Other noncurrent liabilities | 8,263 | ||||||
Total liabilities assumed | $ | 53,210 | |||||
Total purchase price, net of cash acquired | $ | 300,793 |
Acquired Goodwill
Acquired goodwill of $135,880, all of which is allocated to the Clinical Genomics reportable segment, represents the value expected to arise from the value of expanded market opportunities, expected synergies, and assembled workforce, none of which qualify as amortizable intangible assets. The goodwill acquired is not deductible for income tax purposes.
Unaudited Pro Forma Information
The following unaudited pro forma financial information presents the combined results of operations of Mesa and Agena as if the acquisition had occurred on April 1, 2021 after giving effect to certain pro forma adjustments.
Three Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Pro forma total revenues | $ | 50,453 | $ | 53,553 | ||||
Pro forma net income | (4,709 | ) | 2,521 |
The pro forma financial information includes adjustments that are directly attributable to the business combinations and are factually supportable. The pro forma adjustments include incremental amortization of intangible assets, additional stock based compensation expense for key Agena employees, the removal of interest expense attributable to Agena’s external debt that was paid off as part of the acquisition, and the pro forma tax impact for such adjustments. Cost savings or operating synergies expected to result from the acquisition are not included in the pro forma results. For the three months ended June 30, 2022, the pro forma financial information excludes $356 of non-recurring acquisition-related expenses as well as costs associated with a performance share award granted to key employees of Agena that would have been fully expensed by the start of our first quarter 2022. These pro forma results are illustrative only and not indicative of the actual results of operations that would have been achieved nor are they indicative of future results of operations.completed.
Note 3. Revenue Recognition
We develop, manufacture, market, sell and maintain life sciences tools and quality control instruments and related software, consumables, and services. We evaluate revenues internally based primarily on operating segment and the nature of goods and services provided.
Sales of hardware and software,Hardware sales include physical products such as instruments used for molecular and genetic analysis, protein synthesizers, medical meters, wireless sensor systems, and data loggers, are generally driven by our acquisition of new customers, growth of existing customers, or customers replacing existing equipment.loggers. Hardware sales may be offered with accompanying perpetual or annual software licenses, which in some cases are required for the hardware to function. We also offer discrete and ongoing service and maintenance contracts on our instruments.
Our consumables, such as panels or reagents that are used for molecular and genetic analysis, are critical for the ongoing use of our instruments. In contrast, biological indicator test strips are used on a standalone basis. Consumables are typically used on a one-time basis and require frequent replacement in our customers' operating cycles. Consumables such as reagents used for molecular and genetic analysis or solutions used for protein synthesis are critical to the ongoing use of our instruments. Consumables such as biological indicator test strips are used on a standalone basis.
We evaluatealso offer maintenance, calibration, and testing service contracts. Under our revenues internally basedservice contracts we perform labor and replace parts on operating segment, the timingan as-needed basis over a contractually specified period of revenue generation, and the nature of goods and services provided. time or perform specific, discrete services.
Typically, discrete revenue is recognized at the shipping point orupon shipment of a product, upon completion of thea discrete service, while contracted revenue is recognizedor over a period of time reflective of the performance obligation period in the applicable contract.contract, depending on when our obligation to the customer is satisfied. The significant majority of our revenues and related receivables are generated from contracts with customers that are 12 months or less in duration.
The following tables present disaggregated revenues for the three months ended June 30, 2022 2023and 20212022, respectively:
Three Months Ended June 30, 2022 | Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||
Clinical Genomics* | Sterilization and Disinfection Control | Biopharmaceutical Development | Calibration Solutions | Total | Sterilization and Disinfection Control | Clinical Genomics | Biopharmaceutical Development | Calibration Solutions | Total | |||||||||||||||||||||||||||||||
Discrete Revenues | ||||||||||||||||||||||||||||||||||||||||
Consumables | $ | 10,910 | $ | 12,228 | $ | 4,856 | $ | 854 | $ | 28,848 | $ | 13,707 | $ | 8,769 | $ | 4,486 | $ | 509 | $ | 27,471 | ||||||||||||||||||||
Hardware and Software | 2,105 | 306 | 3,686 | 5,693 | 11,790 | 81 | 3,427 | 2,691 | 7,078 | 13,277 | ||||||||||||||||||||||||||||||
Services | 528 | 765 | 1,159 | 2,661 | 5,113 | 2,139 | 1,173 | 2,712 | 3,873 | 9,897 | ||||||||||||||||||||||||||||||
Contracted Revenues | ||||||||||||||||||||||||||||||||||||||||
Services and Software | 962 | 1,475 | 1,266 | 999 | 4,702 | |||||||||||||||||||||||||||||||||||
Total Revenues | $ | 14,505 | $ | 14,774 | $ | 10,967 | $ | 10,207 | $ | 50,453 | $ | 15,927 | $ | 13,369 | $ | 9,889 | $ | 11,460 | $ | 50,645 |
Three Months Ended June 30, 2021 | Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||
Clinical Genomics* | Sterilization and Disinfection Control | Biopharmaceutical Development | Calibration Solutions | Total | Sterilization and Disinfection Control | Clinical Genomics | Biopharmaceutical Development | Calibration Solutions | Total | |||||||||||||||||||||||||||||||
Discrete Revenues | ||||||||||||||||||||||||||||||||||||||||
Consumables | $ | 0 | $ | 12,876 | $ | 3,772 | $ | 952 | $ | 17,600 | $ | 12,228 | $ | 11,531 | $ | 3,664 | $ | 854 | $ | 28,277 | ||||||||||||||||||||
Hardware and Software | 0 | 160 | 3,393 | 7,082 | 10,635 | 306 | 1,491 | 4,824 | 5,693 | 12,314 | ||||||||||||||||||||||||||||||
Services | 0 | 701 | 582 | 2,235 | 3,518 | 2,240 | 1,483 | 2,479 | 3,660 | 9,862 | ||||||||||||||||||||||||||||||
Contracted Revenues | ||||||||||||||||||||||||||||||||||||||||
Services and Software | 0 | 1,413 | 1,130 | 624 | 3,167 | |||||||||||||||||||||||||||||||||||
Total Revenues | $ | 0 | $ | 15,150 | $ | 8,877 | $ | 10,893 | $ | 34,920 | $ | 14,774 | $ | 14,505 | $ | 10,967 | $ | 10,207 | $ | 50,453 |
*Revenues in the Clinical Genomics division represent transactions subsequent to the Agena Acquisition on October 20, 2021.
Revenues from external customers are attributed to individual countries based upon the locations to which the products are shipped or exported, or the location of servicelocations where services are performed, as follows:
Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
United States | $ | 29,122 | $ | 18,455 | $ | 26,537 | $ | 29,122 | ||||||||
Foreign | 21,331 | 16,465 | ||||||||||||||
China | 6,113 | 3,697 | ||||||||||||||
Other | 17,995 | 17,634 | ||||||||||||||
Total revenues | $ | 50,453 | $ | 34,920 | $ | 50,645 | $ | 50,453 |
Other than China, Nono foreign country exceeds 10% of total revenues.
Contract Balances
Our contracts have varying payment terms and conditions. Some customers prepay for products and services, resulting in unearned revenues or customer deposits, called contract liabilities. Short-term contract liabilities are included within other accrued expenses and unearned revenues in the accompanying Condensed Consolidated Balance Sheets, and long-term contract liabilities are included within other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.
A summary of contract liabilities is as follows:
Contract liabilities as of March 31, 2022 | $ | 15,069 | ||
Prior year liabilities recognized in revenues during the three months ended June 30, 2022 | (3,298 | ) | ||
Contract liabilities added during the three months ended June 30, 2022, net of revenues recognized | 3,497 | |||
Contract liabilities balance as of June 30, 2022 | $ | 15,268 |
Contract liabilities as of March 31, 2023 | $ | 16,098 | ||
Prior year liabilities recognized in revenues during the three months ended June 30, 2023 | (3,535 | ) | ||
Contract liabilities added during the three months ended June 30, 2023, net of revenues recognized | 3,143 | |||
Contract liabilities balance as of June 30, 2023 | $ | 15,706 |
Contract liabilities primarily relate to service contracts with original expected service durations of 12 months or less and will be recognized to revenue over time as time passes.our performance obligations are satisfied.
Note 4. Fair Value Measurements
Our financial instruments consist primarily of cash and cash equivalents, trade accounts receivable, obligations under trade accounts payable, and debt. Due to their short-term nature, the carrying values for cash and cash equivalents, trade accounts receivable, and trade accounts payable approximate fair value. We measure our cash equivalents at fair value using quoted market prices in an active market, and we classify themvalue; they are classified within Level 1 of the fair value hierarchy.
Historically, the financial instruments that subject us to the highest concentration of credit risk are cash and cash equivalents and accounts receivable. It is our policyWe maintain relationships and cash deposits at multiple banking institutions across the world in an effort to invest in highly liquid cash equivalent financial instruments with high credit ratingsdiversify and to maintain low single issuer exposure (except U.S. treasuries).reduce risk of loss. Concentration of credit risk with respect to accounts receivable is limited to customers to whichwhom we make significant sales. One distributor accounted for approximately 13% of total trade receivables as of June 30, 2023, compared to 18% as of our fiscal year ended March 31, 2023. The distributor's outstanding balance was current as of June 30, 2023, and the substantial majority has since been collected.
We reserve an allowance for potential write-offs of accounts receivable using historical collection experience and current and expected future economic and market conditions, but we have not written off any significant accounts to date.conditions. To manage credit risk, we consider the creditworthiness of new and existing customers, and we regularly review outstanding balances and payment histories. We may require pre-payments from customers under certain circumstances and may limit future purchases until payments are made on past due amounts.
We have outstanding $172,500 aggregate principal of 1.375% convertible senior notes due August 15, 2025 (the "Notes"). We estimate the fair value of the Notes based on the last actively traded price or observable market input preceding the end of the reporting period, and the fair value is approximately correlated to our stock price. The estimated fair value and carrying value of the Notes werewas as follows:
June 30, 2022 | March 31, 2022 | |||||||||||||||
Carrying Value | Fair Value (Level 2) | Carrying Value | Fair Value (Level 2) | |||||||||||||
Notes | $ | 169,590 | $ | 161,934 | $ | 169,365 | $ | 185,438 |
June 30, 2023 | March 31, 2023 | |||||||||||||||
Carrying Value | Fair Value (Level 2) | Carrying Value | Fair Value (Level 2) | |||||||||||||
Notes | $ | 170,502 | $ | 154,495 | $ | 170,272 | $ | 161,072 |
AssetsAmounts recognized or disclosed at fair value in the unaudited condensed consolidated financial statements on a nonrecurring basis include itemsthe initial recognition and disclosure of most assets and liabilities purchased in a business acquisition and any related measurement period adjustments. Additionally, assets such as property and equipment, operating lease assets, goodwill, and other intangible assets. These assets are measured atadjusted to fair value if determined to be impaired. We recorded no impairments during the three months ended June 30, 2023 or 2022. Fair values of such assets and liabilities require measurement using Level 3 inputs. There were no transfers between the levels of the fair value hierarchy during the three months ended June 30, 2022 2023or 2021,2022, respectively.
We are obligated to pay contingent consideration of $1,500 cash related to the Belyntic acquisition upon approval of pending patent applications. The fair value of the contingent consideration was $1,137 as of 9June 30, 2023
Note 5. Supplemental Balance Sheets Information
Inventories consistconsisted of the following:
June 30, 2022 | March 31, 2022 | June 30, 2023 | March 31, 2023 | |||||||||||||
Raw materials | $ | 15,014 | $ | 14,172 | $ | 20,062 | $ | 20,064 | ||||||||
Work in process | 2,150 | 4,419 | 949 | 617 | ||||||||||||
Finished goods | 9,710 | 6,015 | 14,548 | 13,961 | ||||||||||||
Inventories, net | $ | 26,874 | $ | 24,606 | ||||||||||||
Total inventories | $ | 35,559 | $ | 34,642 |
Prepaid expenses and other consistcurrent assets consisted of the following:
June 30, 2023 | March 31, 2023 | |||||||
Prepaid expenses | $ | 3,614 | $ | 2,498 | ||||
Deposits | 1,387 | 1,376 | ||||||
Prepaid income taxes | 2,135 | 953 | ||||||
Other current assets | 4,142 | 4,045 | ||||||
Total prepaid expenses and other | $ | 11,278 | $ | 8,872 |
Accrued payroll and benefits consisted of the following:
June 30, 2022 | March 31, 2022 | |||||||
Prepaid expenses | $ | 4,173 | $ | 2,871 | ||||
Prepaid income taxes | 6,181 | 2,536 | ||||||
Other current assets | 5,312 | 3,735 | ||||||
Total prepaid expenses and other | $ | 15,666 | $ | 9,142 |
June 30, 2023 | March 31, 2023 | |||||||
Bonus payable | $ | 1,857 | $ | 4,461 | ||||
Wages and paid-time-off payable | 2,958 | 2,329 | ||||||
Payroll related taxes | 2,172 | 1,982 | ||||||
Other benefits payable | 282 | 661 | ||||||
Total accrued payroll and benefits | $ | 7,269 | $ | 9,433 |
Accrued payroll and benefits consistother expenses consisted of the following:
June 30, 2022 | March 31, 2022 | |||||||
Bonus payable | $ | 2,138 | $ | 7,468 | ||||
Wages and paid-time-off payable | 3,116 | 3,677 | ||||||
Payroll related taxes | 2,551 | 2,069 | ||||||
Other benefits payable | 1,596 | 1,503 | ||||||
Total accrued payroll and benefits | $ | 9,401 | $ | 14,717 |
June 30, 2023 | March 31, 2023 | |||||||
Accrued business taxes | $ | 5,658 | $ | 5,941 | ||||
Current operating lease liabilities | 2,806 | 2,868 | ||||||
Income taxes payable | 50 | 992 | ||||||
Other | 2,383 | 2,297 | ||||||
Total other accrued expenses | $ | 10,897 | $ | 12,098 |
Note 6. Goodwill and Intangible Assets, Net
Finite-lived intangibleIntangible assets, consistthe significant majority of which are finite-lived, consisted of the following:
June 30, 2022 | March 31, 2022 | June 30, 2023 | March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||||
Customer relationships | $ | 235,519 | $ | (70,499 | ) | $ | 165,020 | $ | 244,157 | $ | (67,469 | ) | $ | 176,688 | $ | 232,431 | $ | (89,916 | ) | $ | 142,515 | $ | 238,247 | $ | (86,058 | ) | $ | 152,189 | ||||||||||||||||||||
Intellectual property | 64,953 | (14,186 | ) | 50,767 | 65,893 | (12,620 | ) | 53,273 | 66,629 | (21,342 | ) | 45,287 | 65,950 | (19,550 | ) | 46,400 | ||||||||||||||||||||||||||||||||
Other Intangibles | 24,752 | (5,539 | ) | 19,213 | 25,350 | (5,194 | ) | 20,156 | ||||||||||||||||||||||||||||||||||||||||
Other intangibles | 24,486 | (6,894 | ) | 17,592 | 24,793 | (6,567 | ) | 18,226 | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 325,224 | $ | (90,224 | ) | $ | 235,000 | $ | 335,400 | $ | (85,283 | ) | $ | 250,117 | $ | 323,546 | $ | (118,152 | ) | $ | 205,394 | $ | 328,990 | $ | (112,175 | ) | $ | 216,815 |
Amortization expense for finite-lived intangible assets acquired in a business combination was $7,320 and $3,816 for the three months ended June 30, 2022 and 2021, respectively. Amortization for technology intangibles is included in cost of revenues and amortization for other types of intangibles is expensed to general and administrative expense on the Statements of Operations.as follows:
Three Months Ended June 30, 2023 2022 Amortization in cost of revenues Amortization in general and administrative Total $ 1,728 $ 1,708 5,492 5,612 $ 7,220 $ 7,320
For the following fiscal years ending March 31, amortization expense is estimated as follows:
Remainder of 2023 | 21,591 | |||||
2024 | 28,278 | |||||
Remainder of 2024 | $ 21,017 | |||||
2025 | 26,704 | 26,612 | ||||
2026 | 25,950 | 25,847 | ||||
2027 | 25,453 | 25,346 | ||||
2028 | 24,890 |
The change in the carrying amount of goodwill was as follows:
Sterilization and Disinfection Control | Clinical Genomics | Biopharmaceutical Development | Calibration Solutions | Total | ||||||||||||||||
March 31, 2023 | $ | 29,559 | $ | 135,811 | $ | 83,857 | $ | 37,217 | 286,444 | |||||||||||
Effect of foreign currency translation | (12 | ) | (138 | ) | (3,376 | ) | (3 | ) | (3,529 | ) | ||||||||||
Measurement period adjustment - Belyntic Acquisition | - | - | 841 | - | 841 | |||||||||||||||
June 30, 2023 | $ | 29,547 | $ | 135,673 | $ | 81,322 | $ | 37,214 | $ | 283,756 |
Clinical Genomics | Sterilization and Disinfection Control | Biopharmaceutical Development | Calibration Solutions | Total | ||||||||||
March 31, 2022 | $ | 135,914 | $ | 29,750 | $ | 88,265 | $ | 37,237 | $ | 291,166 | ||||
Effect of foreign currency translation | (197) | (455) | (6,894) | (55) | (7,601) | |||||||||
June 30, 2022 | $ | 135,717 | $ | 29,295 | $ | 81,371 | $ | 37,182 | $ | 283,565 |
Goodwill in the Biopharmaceutical Development division related to the Belyntic acquisition and is tax deductible.
Note 7. Indebtedness
Credit Facility
We maintain a senior credit facility (the “Credit Facility”) that includes 1) a revolving credit facility in an aggregate principal amount of up to $75,000, 2) a swingline loan in an aggregate principal amount not exceeding $5,000, and 3) letters of credit in an aggregate stated amount not exceeding $2,500 at any time and
$2,500. The Credit Facility matures in March 2025. The Credit Facility also provides for an incremental term loan or an increase in revolving commitments in an aggregate principal amount of at a minimum $25,000 and at a maximum $75,000, subject to the satisfaction of certain conditions and lender considerations.
As of June 30, 2022, 2023, we had $47,000$5,000 outstanding under the Credit Facility. We paid an additional $3,500 on the outstanding Credit Facility balance in July 2023.
Amounts borrowed under the Credit Facility bear interest at either a base rate or a EurodollarSOFR rate, plus an applicable spread. The weighted average interest rate on borrowingborrowings under our line of credit during theas of first quarter of fiscal year June 30, 2023 was 1.75%7.0%. We are obligated to pay quarterly unused commitment fees of between 0.15% and 0.35% of the Credit Facility’s aggregate principal amount, based on our leverage ratio.
The financial covenants in the Credit Facility include a maximum leverage ratio of 5.0 to 1.0 for the period ended June 30, 2022, 2023, except that we may have a leverage ratio of 5.75 to 1.0 for a period of four consecutive quarters following a permitted acquisition. The Credit Facility also stipulates a minimum fixed charge coverage ratio of 1.25 to 1.0. Other covenants include restrictions on our ability to incur debt, grant liens, make fundamental changes, engage in certain transactions with affiliates, or conduct asset sales. As of June 30, 20222023, we were in compliance with all covenants.
In July 2022, we repaid $12,000 of the outstanding balance on our Credit Facility.
ConvertibleConvertible Notes
On August 12, 2019, we issued an aggregate principal amount of $172,500 of Notes. The net proceeds from the Notes, after deducting underwriting discounts and commissions and other related offering expenses payable by us, were approximately $167,056.$167,056. The Notes mature on August 15, 2025, unless earlier repurchased or converted, and bear interest at a rate of 1.375% payable semi-annually in arrears on February 15 and August 15 each year beginning on year. The Notes are initially convertible at a conversion rate of 3.5273 shares of common stock per $February 15, 2020. 1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $283.50 per share of common stock.
Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. Our current intent is to settle conversions entirely in shares of common stock. We will reevaluate this policy from time to time as we receive conversion notices from note holders. The circumstances necessary for voluntary conversion were not met during the three months ended June 30, 20222023. As of June 30, 20222023, the Notes are classified as a long-term liability on our Condensed Consolidated Balance Sheets as the circumstances necessary for conversion were not satisfied as of the end of the period.Sheets. The if-converted value of the Notes did not exceed the principal balance as of June 30, 20222023.
The net carrying amount of the Notes was as follows:
June 30, 2022 | March 31, 2022 | June 30, 2023 | March 31, 2023 | |||||||||||||
Principal outstanding | $ | 172,500 | $ | 172,500 | $ | 172,500 | $ | 172,500 | ||||||||
Unamortized debt issuance costs | (2,910 | ) | (3,135 | ) | (1,998 | ) | (2,228 | ) | ||||||||
Net carrying value | $ | 169,590 | $ | 169,365 | $ | 170,502 | $ | 170,272 |
We recognized interest expense on the Notes as follows:
Three Months Ended June 30, | Three Months Ended June 30 | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Coupon interest expense at 1.375% | $ | 593 | $ | 593 | $ | 593 | $ | 593 | ||||||||
Amortization of debt discounts and issuance costs | 225 | 221 | 230 | 225 | ||||||||||||
Total | $ | 818 | $ | 814 | ||||||||||||
Total interest and amortization of debt issuance costs | $ | 823 | $ | 818 |
The effective interest rate on the notes is approximately 1.9%.
Note 8. Stockholders' Equity
Stock-Based Compensation
During the firstthree quarter of fiscal yearmonths ended June 30, 2023, we issued stock options, restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") pursuant to the Mesa Laboratories, Inc. 2021 Equity Incentive Plan (the "2021 Equity Plan"), which authorizes the issuance of 330 shares of common stock to eligible participants.
Expense recognized related to stock-based compensation is as follows:
Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Stock-based compensation expense | $ | 3,432 | $ | 2,197 | $ | 2,968 | $ | 3,432 | ||||||||
Amount of income tax (benefit) expense recognized in earnings | (1,992 | ) | (2,785 | ) | ||||||||||||
Amount of income tax (benefit) recognized in earnings | (872 | ) | (1,992 | ) | ||||||||||||
Stock-based compensation expense, net of tax | $ | 1,440 | $ | (588 | ) | $ | 2,096 | $ | 1,440 |
Stock-based compensation expense is included in cost of revenues, selling, general and administrative, and research and development expense in the accompanying unaudited Condensed Consolidated Statements of Operations.
The following is a summary of stock option award activity for the three months ended June 30, 2022:2023:
Stock Options | Stock Options | |||||||||||||||||||||||||||||||
Shares Subject to Options | Weighted- Average Exercise Price per Share | Weighted-Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | Shares Subject to Options | Weighted- Average Exercise Price per Share | Weighted-Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||||||||||||||||||
Outstanding as of March 31, 2022 | 202 | $ | 167.14 | 2.9 | $ | 18,261 | ||||||||||||||||||||||||||
Outstanding as of March 31, 2023 | 163 | $ | 200.62 | 3.3 | $ | 1,643 | ||||||||||||||||||||||||||
Awards granted | 42 | 185.57 | 53 | 131.67 | ||||||||||||||||||||||||||||
Awards forfeited or expired | (4 | ) | 231.15 | (2 | ) | 182.34 | ||||||||||||||||||||||||||
Awards exercised | (16 | ) | 93.12 | - | - | |||||||||||||||||||||||||||
Outstanding as of June 30, 2022 | 224 | $ | 174.93 | 3.3 | $ | 9,493 | ||||||||||||||||||||||||||
Outstanding as of June 30, 2023 | 214 | $ | 183.64 | 3.8 | $ | 119 |
The stock options granted during the three months ended June 30, 2022 2023vest in equal installments on the first, second, and third anniversary of the grant date.
The following is a summary of RSU award activity for the three months ended June 30, 2022:2023:
Time-Based Restricted Stock Units | Performance-Based Restricted Stock Units | |||||||||||||||
Number of Shares | Weighted- Average Grant Date Fair Value per Share | Number of Shares | Weighted- Average Grant Date Fair Value per Share | |||||||||||||
Outstanding as of March 31, 2022(1) | 51 | $ | 252.86 | 55 | $ | 288.45 | ||||||||||
Awards granted (1) | 33 | 185.57 | 19 | 185.57 | ||||||||||||
Performance adjustment(2) | 0 | 0 | 2 | 202.00 | ||||||||||||
Awards forfeited | (2 | ) | 245.31 | 0 | 0 | |||||||||||
Awards distributed | (7 | ) | 204.62 | (10 | ) | 202.00 | ||||||||||
Outstanding as of June 30, 2022(1) | 75 | $ | 227.63 | 66 | $ | 269.18 |
Time-Based Restricted Stock Units | Performance-Based Restricted Stock Units | |||||||||||||||
Number of Shares | Weighted- Average Grant Date Fair Value per Share | Number of Shares | Weighted- Average Grant Date Fair Value per Share | |||||||||||||
Outstanding as of March 31, 2023(1) | 57 | $ | 209.27 | 44 | $ | 286.02 | ||||||||||
Awards granted(1) | 28 | 130.19 | 32 | 132.29 | ||||||||||||
Awards forfeited | (1 | ) | 193.30 | - | - | |||||||||||
Awards distributed | (20 | ) | 210.83 | - | - | |||||||||||
Outstanding as of June 30, 2023(1) | 64 | $ | 174.58 | 76 | $ | 223.07 |
(1) | Balances for |
|
|
The outstanding time-based RSUs vest and settle in shares of our common stock on a one-for-one basis. All of the RSUs granted during the three months ended June 30, 2022 2023vest in equal installments on the first, second, and third anniversary of the grant date. We recognize the expense relating to RSUs, net of estimated forfeitures, on a straight-line basis over the vesting period.
Mesa grants PSUs to certain key employees. The number of shares earned is determined at the end of each performance period based on Mesa's achievement of certain pre-defined targets defined in the related award agreement. PSUs vest upon completion of the service period described in the award agreement and based on achievement of the financial targets described in the award agreements.agreement. We recognize the expense relating to the performance-based RSUs based on the probable outcome of achievement of the financialperformance targets on a straight-line basis over the service period.
During the three months ended June 30, 2022, 2023, the Compensation Committee of the Board of Directors created a plan to award 1932 PSUs at target (the "FY 23"FY24 PSUs") with a grant date fair value of $132.29 that are subject to both service, performance, and performancemarket conditions to eligible employees. The performance period for the FY 23 PSUs is from April 1, 2022 until March 31, 2023 and the service period is from April 1, 20222023 untilthrough June 21, 2026. The company performance conditions will be measured for the period from April 1, 2023 through March 31, 2025.2024. Of the FY 23 PSUs, 13 vest based on our achievement of specific performance criteria during fiscal year 2023 and they have a grant date fair value of $185.57. The remaining 6 awards will be settled in shares of our common stock, but they are subject to performance criteria that are subjective and as such do not have a grant date. The awards will be marked-to-market each reporting period during the performance period. The quantity of shares that will be issuedearned based upon vestingcompany performance will range from 0% to 200% of the targeted number of shares; if the defined minimum targets are not met, then no shares will vest.
During fiscal yearvest for performance. In addition, the number of PSUs earned based on company performance will be adjusted up or down by a maximum of 20% pursuant to a market-based measure of performance comparing Mesa’s share price to a peer group over the period from 2020,April 1, 2023 we awardeduntil 8March 31, 2026. PSUs (the "FY 20 PSUs") subject to both service and performance conditions to eligible employees. The FY 20 PSUs had a grant date fair value of $202.00 per share and vested during the three months ended June 30, 2022. Based on actual performance targets achieved, the awards vested at 126% of target, resulting in a total of 10 awards distributed.
Note 9. EarningsNet (Loss) Per Share
Basic net (loss) earnings per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding during the reporting period. Diluted (loss) earnings per share (“diluted EPS”) is computed similarly to basic (loss) earnings per share, except that it includes the potential dilution that could occur if dilutive securities were exercised. Potentially dilutive securities include stock options and both time and performance based RSUs (collectively “stock awards”), as well as common shares underlying the Notes. Stock awards are excluded from the calculation of diluted EPS if they are subject to performance conditions that have not yet been achieved or are antidilutive. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would then have an antidilutive effect. There was no dilution in our diluted EPS calculation for the three months ended June 30, 2022 as we incurred a net loss and the effect would have been antidilutive.
The impact of the assumed conversion of the Notes calculated under the if-converted method was antidilutive, and as such, shares underlying the Notes were excluded from the diluted EPS calculation for the three months ended June 30, 2022 2023and June 30, 2021. .
The following table presents a reconciliation of the denominators used in the computation of basic and diluted (loss) earnings per share:
Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Net (loss) income available for shareholders | $ | (1,438 | ) | $ | 1,995 | |||||||||||
Net (loss) available for shareholders | $ | (549 | ) | $ | (1,438 | ) | ||||||||||
Weighted average outstanding shares of common stock | 5,273 | 5,152 | 5,372 | 5,273 | ||||||||||||
Dilutive effect of stock options | 0 | 108 | - | - | ||||||||||||
Dilutive effect of RSUs | 0 | 41 | - | - | ||||||||||||
Fully diluted shares | 5,273 | 5,301 | 5,372 | 5,273 | ||||||||||||
Basic (loss) earnings per share | $ | (0.27 | ) | $ | 0.39 | |||||||||||
Diluted (loss) earnings per share | $ | (0.27 | ) | $ | 0.38 | |||||||||||
Basic (loss) per share | $ | (0.10 | ) | $ | (0.27 | ) | ||||||||||
Diluted (loss) per share | $ | (0.10 | ) | $ | (0.27 | ) |
The following stock awards were excluded from the calculation of diluted EPS:
Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Assumed conversion of the Notes | 608 | 608 | 608 | 608 | ||||||||||||
Stock awards that were anti-dilutive | 315 | 38 | 227 | 315 | ||||||||||||
Stock awards subject to performance conditions | 45 | 8 | ||||||||||||||
Stock awards subject to performance and market conditions | 40 | 45 | ||||||||||||||
Total stock awards excluded from diluted EPS | 968 | 654 | 875 | 968 |
Note 10. Income Taxes
For interim income tax reporting, we estimate our annual effective tax rate and apply this effective tax rate to our year-to-date pre-tax income. Each quarter, our estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. Additionally, the tax effects of significant unusual or infrequently occurring items are recognized as discrete items in the interim period in which the events occur. There is a potential for volatility in the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates,they relate, changes in tax laws and foreign tax holidays, settlement with taxing authorities, and foreign currency fluctuations.
Our effective income tax rate was (73.4%)41.4% for the three months ended June 30, 2022 2023and (40.7%)73.4% for the three months ended June 30, 2021.2022. The effective tax rate for the three months ended June 30, 2022 2023differed from the statutory federal rate of 21% primarily due to the share-based payment awards for employees and the effect of income generated in foreign jurisdictionsjurisdictions. The change in our effective tax rate for the firstthree months ofended June 30, 2023 was higher than the same period in 2022is primarily due to the share based compensationlower windfall benefits on stock option exercises and the effect of income in foreign jurisdictions.
Note 11. Commitments and Contingencies
We review the adequacy of our legal reserves on a quarterly basis and establish reserves for loss contingencies that are both probable and reasonably estimable. As of June 30, 20222023, there were no material legal reserves recorded on the accompanying unaudited Condensed Consolidated Balance Sheets.
As part of the Belyntic acquisition, we have agreed to pay $1,500 to the sellers if contractually specified patents are issued. We believe it is probable the patents will be issued and we will pay the sellers in full within the next 1336
Note 12. Segment Information
During fiscal year 2022, we realignedThe following tables set forth our financial reporting segments to reflect how management evaluates the business and allocates resources. The acquisition of Agena expanded our presence further into the life sciences tools market and provided an impetus for the creation of our new Clinical Genomics reportable segment. The strategic shift in our business also resulted in a change to the way we manage other business units, and as a result, our historical Instruments and Continuous Monitoring reportable segments have been combined to create Calibration Solutions. Prior year amounts presented have been reclassified to conform to current year presentation. Our change in financial reporting segments has not resulted in any change to previously reported consolidated amounts.segment information:
Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Revenues: | ||||||||||||||||
Sterilization and Disinfection Control | $ | 15,927 | $ | 14,774 | ||||||||||||
Clinical Genomics | $ | 14,505 | $ | 0 | 13,369 | 14,505 | ||||||||||
Sterilization and Disinfection Control | 14,774 | 15,150 | ||||||||||||||
Biopharmaceutical Development | 10,967 | 8,877 | 9,889 | 10,967 | ||||||||||||
Calibration Solutions | 10,207 | 10,893 | 11,460 | 10,207 | ||||||||||||
Total revenues (a) | $ | 50,453 | $ | 34,920 | $ | 50,645 | $ | 50,453 | ||||||||
Gross profit | ||||||||||||||||
Gross profit: | ||||||||||||||||
Sterilization and Disinfection Control | $ | 11,591 | $ | 10,768 | ||||||||||||
Clinical Genomics | $ | 7,849 | $ | 0 | 6,728 | 7,849 | ||||||||||
Sterilization and Disinfection Control | 10,768 | 11,428 | ||||||||||||||
Biopharmaceutical Development | 7,077 | 4,692 | 6,433 | 7,077 | ||||||||||||
Calibration Solutions | 5,664 | 6,112 | 6,431 | 5,664 | ||||||||||||
Reportable segment gross profit | 31,358 | 22,232 | 31,183 | 31,358 | ||||||||||||
Corporate and Other (b) | (17 | ) | (21 | ) | - | (17 | ) | |||||||||
Gross profit | $ | 31,341 | $ | 22,211 | $ | 31,183 | $ | 31,341 | ||||||||
Reconciling Items: | ||||||||||||||||
Operating expenses | 35,935 | 19,088 | 31,847 | 35,935 | ||||||||||||
Operating (loss) income | (4,594 | ) | 3,123 | |||||||||||||
Nonoperating (income) expense, net | 818 | 1,705 | ||||||||||||||
(Loss) earnings before income taxes | $ | (5,412 | ) | $ | 1,418 | |||||||||||
Operating (loss) | (664 | ) | (4,594 | ) | ||||||||||||
Nonoperating expense, net | 273 | 818 | ||||||||||||||
(Loss) before income taxes | $ | (937 | ) | $ | (5,412 | ) |
(a) | Intersegment revenues are not significant and are eliminated to arrive at consolidated totals. |
(b) |
The following table sets forth inventories by reportable segment. Our chief operating decision maker is not provided with any other segment asset information.
June 30, | March 31, | June 30, | March 31, | |||||||||||||
2022 | 2022 | 2023 | 2023 | |||||||||||||
Sterilization and Disinfection Control | $ | 3,758 | $ | 3,492 | ||||||||||||
Clinical Genomics | $ | 12,711 | $ | 11,802 | 13,744 | 13,985 | ||||||||||
Sterilization and Disinfection Control | 2,310 | 2,176 | ||||||||||||||
Biopharmaceutical Development | 4,960 | 4,495 | 8,889 | 8,384 | ||||||||||||
Calibration Solutions | 6,893 | 6,133 | 9,168 | 8,781 | ||||||||||||
Total inventories | $ | 26,874 | $ | 24,606 | $ | 35,559 | $ | 34,642 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements in this Quarterly Report on Form 10-Q do not constitute guarantees of future performance. Investors are cautioned that statements in this Quarterly Report on Form 10-Q which are not strictly historical statements, including, without limitation, express or implied statements or guidance regarding current or future financial performance and position; potential impairment of future earnings; anticipated effects of, and future actions to be taken in response to, the COVID-19 pandemic; results of acquisitions; management’s strategy, plans and objectives for future operations or acquisitions, product development and sales; product research and development; regulatory approvals; selling, general and administrative expenditures; intellectual property; development and manufacturing plans; availability of materials and components; and adequacy of capital resources and financing plans constitute forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates, and management’s beliefs and assumptions. In addition, other written and oral statements that constitute forward-looking statements may be made by the Company or on the Company’s behalf. Words such as“expect,” “intend,” “seek,” “believe,” “anticipate,may,” “intend,” “could,”“estimate,expect,” “anticipate,” “plan,” “target,” “may,estimate,” “project,” or variations of such words and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including risks associated with: our ability to successfully grow our business, including as a result of acquisitions; the resultseffect that acquisitions have on our operations; our ability to consummate acquisitions at our historical rate and at appropriate prices, and our ability to effectively integrate acquired businesses and achieve desired results; the market acceptance of our products; technological or market viability of our products; reduced demand for our products, including as a result of competitive factors; conditions in the global economy and the particular markets we serve; the duration and impact of the COVID-19 pandemic and its adverse effects on our business; significant developments or uncertainties stemming from governmental actions, including changes in trade policies and medical device regulations; the timely development and commercialization, and customer acceptance, of enhanced and new products and services; retirement of old products and customer migration to new products; projections of revenues, growth, operating results, profit margins, earnings, expenses, margins, tax rates, tax provisions, liquidity, cash flows, demand, and competition; the effects of additional actions taken to become more efficient or lower costs; restructuring activitiessupply chain challenges; cost pressures and the overall effects of the current high inflation environment on customers;’ purchasing patterns;laws regulating fraud and abuse in the health care industry and the privacy and security of health and personal information; product liability; information security; outstanding claims, legal and regulatory proceedings; international business challenges including anti-corruption and sanctions laws;laws and political developments; tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic, industry, and capital markets conditions, including rising interest rates and potential recessionary conditions; the timing of any of the foregoing; and assumptions underlying any of the foregoing. Such risks and uncertainties also include those listed in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 20222023 and in this report. The foregoing list sets forth many, but not all, of the factors that could impact our ability to achieve results described in any forward-looking statements. We disclaim any obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Overview
We are a multinational manufacturer, developer, and seller of life science tools and quality control products and services, many of which are sold into niche markets that are driven by regulatory requirements. We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe, and Asia Pacific, andas well as by independent distributors in these areas as well asand throughout the rest of the world. We prefer markets in which we can establish a strong presence and achieve high gross profit margins.
As of June 30, 2022,2023, we managed our operations in four reportable segments, or divisions: Clinical Genomics, Sterilization and Disinfection Control, Clinical Genomics, Biopharmaceutical Development, and Calibration Solutions. Each of our divisions areis described further in "Results of Operations" below. Non-reportable operating segmentsUnallocated corporate expenses and unallocated corporate expensesother business activities are reported within Corporate and Other.
Corporate Strategy
We strive to create shareholder value and further our purpose of Protecting the Vulnerable® by growing our business both organically and through acquisitions, by improving our operating efficiency, and by continuing to hire, develop and retain top talent. As a business, we commit to our purpose of Protecting the Vulnerable® every day by taking a customer-focused approach to developing, building, and delivering our products. We serve a broad set of industries, in particular the pharmaceutical, healthcare services, and medical device verticals, that require dependable quality control and calibration solutions to ensurein which the safety, quality, and efficacy of the products they use.is critical. By delivering the highest quality products possible, we are committed to protecting people, the environment, and end products.communities we serve.
Organic Revenues Growth
Organic revenues growth is primarily driven by the expansion of our customer base, increases in sales volumes, new product offerings, and price increases, and may be affected positively or negatively by changes in foreign currency rates. Our ability to increase organic revenues is affected by general economic conditions, both domestic and international, customer capital spending trends, competition, and the introduction of new products. Our policy is to price our products competitively and, where possible, we pass along cost increases to our customers in order to maintain our margins. We typically evaluate costs and pricing annually; however as a result of high inflation in recent quarters, we have elected to put through additionalannually with price increases which will take effect during the second quarter of our fiscal year 2023.
Gross profit is affected by many factors including our product mix, manufacturing efficiencies, costs of products and labor, foreign currency rates, and price competition. Historically, as we have integrated our acquisitions and taken advantage of manufacturing efficiencies, our gross profit percentages for some products have improved. There are, however, differences in gross profit percentages between product lines, and ultimately the mix of sales will continue to impact our overall gross profit.effective January 1.
Inorganic Growth - Acquisitions
During the third quarter of fiscal year 2022, we completed the acquisition of Agena for an aggregate net purchase price of $300,793. Agena is a leading clinical genomics tools company that develops, manufactures, and sells highly sensitive, low-cost, high-throughput, genetic analysis tools used by clinical labs to perform genomic clinical testing in several therapeutic areas, such as newborn screenings, pharmacogenetics and oncology. The acquisition of Agena accelerated our strategic trajectory towards higher growth applications within the regulated segments of the life sciences tools market.
Over the past decade, we have consummated a number of acquisitions as part of our growth strategy. TheThese acquisitions of these businesses have allowed us to expand our product offerings, globalize our company, and increase the scale at which we operate, which in turn affords us the ability to improve our operating efficiency, extend our customer base, and further the pursuit of our purpose: Protecting the Vulnerable®.
Improving Our Operating Efficiency
We maximize value in both our existing businesses and those we acquire by implementing efficiencies in our manufacturing, commercial, engineering, and administrative operations. We achieve efficiencies using the four pillars that make up the The Mesa Way, which is our customer-centric, lean-based system for continuously improving and operating a set of high-margin, niche businesses. The Mesa Way is focused on: Measuring What Matters using our customers' perspective and setting high standards for performance; Empowering Teams to improve operationally and exceed customer expectations; SteadilySustainably Improving using lean-based tools designed to help us identify the root cause of opportunities and prioritize the biggest opportunities; and Always Learning so that performance continuously improves.
Gross profit is affected by many factors including our product mix, manufacturing efficiencies, costs of products and labor, foreign currency rates, and price competition. Historically, as we have integrated our acquisitions and taken advantage of manufacturing efficiencies, our gross profit percentages for some products have improved. There are, however, differences in gross profit percentages between product lines, and ultimately the mix of sales will continue to impact our overall gross profit.
Hire, Develop, and Retain Top Talent
At the center of our organization are talented people who are capable of taking on new challenges using a team approach. It is our exceptionally talented workforce that works together and uses our lean-based tool set to find ways to continuously and sustainably improve our products, our services, and ourselves, resulting in long-term value creation for our shareholders.stakeholders.
General Trends
COVID-19 has caused or exacerbated broad market phenomena such as supply chain disruptions, inflation, and wage pressure to which we are susceptible. While supply chain constraints continue to impact all of our divisions and particularly our Calibration Solutions and Biopharmaceutical Development divisions, we expect that constraints will abate somewhat over the remainder of fiscal year 2023. We continue to work with our suppliers to understand the existing and potential future impacts to our supply chain and are taking actions in an effort to mitigate such impacts, including pre-ordering components in higher quantities than usual, which has resulted in increased raw materials balances on our consolidated balance sheets as of June 30, 2022. We have also experienced labor shortages and inflationary pressures due to labor market conditions, impacting all of our divisions, but particularly our Sterilization and Disinfection Control division. It is possible that labor shortages in our Sterilization and Disinfection Control Division may continue to impact our ability to manufacture product on preferred timelines during the remainder of fiscal year 2023 which could directly impact our revenues and related gross profit.
We continue toare a global company, with multinational operations. During the three months ended June 30, 2023, approximately 48% of our revenues were derived from revenues earned outside of the United States. Since Mesa serves a number of industries across a variety of global markets, we may be affected by world-wide, regional, or industry-specific economic or political factors. However, our diversity in industry, geography, and product and service offerings may limit the impact of changes in specific industry trends or local economic changes in our consolidated operating results. We actively monitor the COVID-19 pandemic,trends affecting industries we operate in, including the spreadmonitoring key competitors and customers, as well as staying abreast of variants of the viruschanges to local economies and the potential impacts that the virushow they may have onaffect our employees, our customers, and our supply chain. Conditions related to the COVID-19 pandemic have generally improveddivisions.
Several challenging macroeconomic factors persisted during the first quarter of our fiscal year 2023; however, there has been significant variation in2024, including high interest rates, high inflation rates, and softening demand for discretionary capital asset purchases across the life sciences tools market. On the other hand, supply chain disruptions, labor shortages and resulting manufacturing difficulties that impacted business impact by geography. For example, lateoperations in fiscal year 2022, an increase2023 largely abated during the three months ended June 30, 2023. Following the loss of Sema4, a significant customer in COVID-19 cases in certain parts of China resulted in the re-imposition of government mandated shut-downs and restrictions, which impacted our operations in China, particularly our Clinical Genomics division. Such regulatory restrictions have negatively impacted commercial execution, limiting salesdivision, in the third quarter of fiscal year 2023, we took strategic steps to contain costs and preserve our operating model. Gross profit as a percentage of revenues in the Clinical Genomics consumablesdivision for the three months ended June 30, 2023 was modestly lower than the prior year period; however, our operating expenses decreased, demonstrating that adjustments to existing customersthe operating model allowed us to largely preserve our financial model despite the customer loss. Our cost containment actions and instrumentsthe resulting significant reductions in our operating expenses during the three months ended June 30, 2023 ultimately allowed us to new customers. As stay-at-homeproduce higher earnings before taxes for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.
A weakening or strengthening of foreign currencies against the United States dollar ("USD") increases or decreases our reported revenues, gross profit margins, and quarantine mandates have easedoperating expenses, and impacts the comparability of our results between periods. Generally, the USD strengthening against major currencies adversely impacts our reported revenues, but to somea lesser extent, we expect an eventual return to normalized activity levels. The continued impact of COVID-19 remains highly uncertain becausepositively impacts our reported expenses; conversely, the weakening of the speed with which the situation continuesU.S. dollar against major currencies positively impacts our reported revenues but negatively impacts our reported expenses. The ultimate impact to evolve, the global breadth of its spread, the range of governmental and community responses thereto and the diversity of our geographic reach and business offerings. Even after the COVID-19 pandemic has largely subsidedgross profit as a public health matter, we may experience material adverse impacts to our business as a resultpercentage of revenue depends on the magnitude of changes in foreign currencies. Overall, the strengthening of the pandemic's adverseU.S. dollar against the euro during the three months ended June 30, 2023 had less of an impact on our reported revenues than the global economy, in-person collaboration and sales efforts, and our customers’ changed purchasing behaviors and confidence.weakening of the U.S. dollar against the euro during the three months ended June 30, 2022.
Results of Operations
Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion below should be read in conjunction with the accompanying Unaudited Condensed Consolidated Financial Statements and the notes thereto appearing in Item 1. Financial Statements (in thousands, except percent data).
Revenues from our reportable segments increased 44%and gross profit as a percentage of revenues remained largely consistent for the three months ended June 30, 2022. Revenues growth was primarily attributable to the acquisition of Agena; however, organic revenues growth was 3% for the three months ended June 30, 2022. Gross profit as a percentage of revenues decreased two percentage points for the three months ended June 30, 20222023, compared to the three months ended June 30, 2021 primarily as a result of continued supply chain constraints, wage and other inflationary pressures, and impacts of government-imposed lockdowns related tosame period in the COVID-19 pandemic. prior year.
Results by reportable segment are as follows:
Revenues | Organic Revenues Growth | Gross Profit as a % of Revenues | ||||||||||||||||||||||
Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | |||||||||||||||||||
Clinical Genomics (*) | $ | 14,505 | $ | - | N/A | N/A | 54 | % | N/A | |||||||||||||||
Sterilization and Disinfection Control | 14,774 | 15,150 | (2 | %) | 16 | % | 73 | % | 75 | % | ||||||||||||||
Biopharmaceutical Development | 10,967 | 8,877 | 24 | % | 49 | % | 65 | % | 53 | % | ||||||||||||||
Calibration Solutions | 10,207 | 10,893 | (6 | %) | - | % | 55 | % | 56 | % | ||||||||||||||
Mesa's reportable segments | $ | 50,453 | $ | 34,920 | 3 | % | 17 | % | 62 | % | 64 | % |
(*) Revenues in the Clinical Genomics division represent transactions subsequent to the Agena Acquisition on October 20, 2021.
Revenues | Organic Revenues Growth | Gross Profit as a % of Revenues | ||||||||||||||||||||||
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||
Sterilization and Disinfection Control | $ | 15,927 | $ | 14,774 | 7.8 | % | (2.5 | %) | 73 | % | 73 | % | ||||||||||||
Clinical Genomics | 13,369 | 14,505 | (7.8 | %) | N/A | 50 | % | 54 | % | |||||||||||||||
Biopharmaceutical Development | 9,889 | 10,967 | (10.3 | %) | 23.5 | % | 65 | % | 65 | % | ||||||||||||||
Calibration Solutions | 11,460 | 10,207 | 12.3 | % | (6.3 | %) | 56 | % | 55 | % | ||||||||||||||
Mesa's reportable segments | $ | 50,645 | $ | 50,453 | 0.3 | % | 2.9 | % | 62 | % | 62 | % |
Our unaudited condensed consolidated results of operations are as follows:
Three Months Ended June 30, | Percentage | Three Months Ended June 30, | Percentage | |||||||||||||||||||||
2022 | 2021 | Change | 2023 | 2022 | Change | |||||||||||||||||||
Revenues | $ | 50,453 | $ | 34,920 | 44 | % | $ | 50,645 | $ | 50,453 | 0 | % | ||||||||||||
Gross profit | 31,341 | 22,211 | 41 | % | 31,183 | 31,341 | (1 | %) | ||||||||||||||||
Operating expenses | 35,935 | 19,088 | 88 | % | 31,847 | 35,935 | (11 | %) | ||||||||||||||||
Operating (loss) income | (4,594 | ) | 3,123 | (247 | %) | |||||||||||||||||||
Net (loss) income | $ | (1,438 | ) | $ | 1,995 | (172 | %) | |||||||||||||||||
Operating (loss) | (664 | ) | (4,594 | ) | (86 | %) | ||||||||||||||||||
Net (loss) | $ | (549 | ) | $ | (1,438 | ) | (62 | %) |
Reportable Segments
Clinical Genomics
The Clinical Genomics division, created following the Agena Acquisition, develops, manufactures, and sells highly sensitive, low-cost, high-throughput, genetic analysis tools used by clinical labs to perform genomic clinical testing in several therapeutic areas, such as screenings for hereditary diseases, pharmacogenetics and oncology related applications.
Three Months Ended June 30, | Percentage | |||||||||||
2022 | 2021 | Change | ||||||||||
Revenues | $ | 14,505 | $ | - | N/A | |||||||
Gross profit | 7,849 | - | N/A | |||||||||
Gross profit as a % of revenues | 54 | % | N/A | N/A |
Clinical Genomics revenues were negatively impacted by the government-imposed shutdowns in parts of China due to the COVID-19 pandemic, which began at the end of fiscal year 2022 and continued throughout the majority of the first quarter of fiscal year 2023. Shut-downs in China limited our sales efforts and decreased sales of consumables as laboratory customers were closed, limiting usage of our products. As these government-imposed shutdowns become less frequent, we expect to see a recovery to more normal demand. Of the revenues reported, $195 represents revenues from COVID-19 related sales.
Clinical Genomics gross profit was $7,849 for the three months ended June 30, 2022 and was significantly impacted by lower than expected revenues due to the government-imposed shutdowns in China related to the COVID-19 pandemic. The decreased revenues impacted gross profit as a percentage of revenues as lower revenues were available to cover our partially fixed cost base.
Sterilization and Disinfection Control
OurThe Sterilization and Disinfection Control divisionDivision manufactures and sells biological, cleaning, and chemical indicators which are used to assess the effectiveness of sterilization and disinfection processes in the hospital,pharmaceutical, medical device, hospital, and pharmaceuticaldental industries. The division also provides testing and laboratory services, mainly to the dental industry. Sterilization and disinfection control products are disposable and are used on a routine basis.
Three Months Ended June 30, | Percentage | Three Months Ended June 30, | Percentage | |||||||||||||||||||||
2022 | 2021 | Change | 2023 | 2022 | Change | |||||||||||||||||||
Revenues | $ | 14,774 | $ | 15,150 | (2 | %) | $ | 15,927 | $ | 14,774 | 8 | % | ||||||||||||
Gross profit | 10,768 | 11,428 | (6 | %) | 11,591 | 10,768 | 8 | % | ||||||||||||||||
Gross profit as a % of revenues | 73 | % | 75 | % | (2 | %) | 73 | % | 73 | % | - | % |
Sterilization and Disinfection Control revenues decreased 2%increased 8% for the three months ended June 30, 20222023 compared to the prior year period, primarily due to unusually low revenues during the strengthening of the U.S. dollar ("USD") against the euro andthree months ended June 30, 2022 attributable to labor shortages that delayed production and order fulfillment, which impacted our ability to manufacture products on desired timelines, partially offset by favorable product mix and to a lesser extentabated in the second half of fiscal year 2023. The division also benefited from price increases.increases during the three months ended June 30, 2023.
Sterilization and Disinfection Control's gross profit percentage was flat for the quarters ended June 30, 2023 and 2022.
Clinical Genomics
The Clinical Genomics division develops, manufactures and sells highly sensitive, low-cost, high-throughput genetic analysis tools and related consumables and services that enable clinical labs to perform genomic testing for a broad range of diagnostic and research applications in several therapeutic areas, such as screenings for hereditary diseases, pharmacogenetics, and oncology related applications.
Three Months Ended June 30, | Percentage | |||||||||||
2023 | 2022 | Change | ||||||||||
Revenues | $ | 13,369 | $ | 14,505 | (8 | %) | ||||||
Gross profit | 6,728 | 7,849 | (14 | %) | ||||||||
Gross profit as a % of revenues | 50 | % | 54 | % | (4 | %) |
Clinical Genomics revenues decreased two8% for the three months ended June 30, 2023 compared to the prior year period, primarily as a result of the loss of revenues from Sema4 and unfavorable changes to foreign currency exchange rates, partially offset by higher revenues in China, particularly hardware revenues.
Gross profit percentage for the Clinical Genomics division decreased four percentage points for the three months ended June 30, 2022 as a result of2023 compared to the prior year period, primarily due to lower revenues dueon a partially fixed cost base and to the strengthening of the USD against the euro and increased labor and labor-related costs.a lesser extent, unfavorable product mix.
Biopharmaceutical Development
Our Biopharmaceutical Development division develops, manufactures, and sells automated systems for protein analysis (immunoassays) and peptide synthesis solutions. Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacturingmanufacture of biotherapeutic drugs.therapies, among other applications.
Three Months Ended June 30, | Percentage | Three Months Ended June 30, | Percentage | |||||||||||||||||||||
2022 | 2021 | Change | 2023 | 2022 | Change | |||||||||||||||||||
Revenues | $ | 10,967 | $ | 8,877 | 24 | % | $ | 9,889 | $ | 10,967 | (10 | %) | ||||||||||||
Gross profit | 7,077 | 4,692 | 51 | % | 6,433 | 7,077 | (9 | %) | ||||||||||||||||
Gross profit as a % of revenues | 65 | % | 53 | % | 12 | % | 65 | % | 65 | % | - | % |
Biopharmaceutical Development revenues increased 24%decreased 10% for the three months ended June 30, 20222023 compared to the prior year period, primarily due to increased sales of both consumablessoftening demand for capital equipment and services, as well as price increases and an easier compare to the first quarter of fiscal year 2022. Increases in revenues were partially offset bya lesser extent, unfavorable changes in foreign exchange rates.currency, partially offset by an increase in revenues from consumables. Given the current economic landscape related to softening demand for capital equipment, revenues for this segment are unlikely to grow at historical levels in fiscal year 2024.
While Biopharmaceutical Development's revenues decreased 10% for the three months ended June 30, 2023 compared to the prior year period, gross profit percentage remained flat, primarily due to a significant increase in consumables revenues, which have a higher gross margin as a percentage of revenues, and to a lesser extent price increases.
Biopharmaceutical Development's gross profit percentage increased 12 percentage points for the first quarter of fiscal year 2023 compared to the first quarter of fiscal year 2022 as a result of a favorable change in foreign exchange rates applied to costs recorded in Swedish Krona ("SEK"), favorable product mix of peptide synthesis solutions, and production efficiencies resulting from increased revenues, partially offset by higher labor and material costs.
Calibration Solutions
The Calibration Solutions division designs,develops, manufactures and marketssells quality control and calibration products usedusing principles of advanced metrology to measure or calibrate temperature, pressure, pH, humidity,critical chemical or physical parameters in various dialysis, process monitoring, instrument monitoring, environmental monitoring, gas flow, environmental air quality, and other such parameters for health and safety purposes,torque applications, primarily in hospital, medical device manufacturing, pharmaceutical manufacturing, laboratory, and laboratoryhospital environments.
Three Months Ended June 30, | Percentage | Three Months Ended June 30, | Percentage | |||||||||||||||||||||
2022 | 2021 | Change | 2023 | 2022 | Change | |||||||||||||||||||
Revenues | $ | 10,207 | $ | 10,893 | (6 | %) | $ | 11,460 | $ | 10,207 | 12 | % | ||||||||||||
Gross profit | 5,664 | 6,112 | (7 | %) | 6,431 | 5,664 | 14 | % | ||||||||||||||||
Gross profit as a % of revenues | 55 | % | 56 | % | (1 | %) | 56 | % | 55 | % | 1 | % |
Calibration Solutions division revenues decreased 6%increased 12% for the three months ended June 30, 20222023 compared to the prior year period, primarily as a resultdue to the abatement of production difficulties and supply constraints limitingthat had limited our ability to manufacture ordered quantities of certain products partially offset by price increases and increased calibration hardware sales.
The Calibration Solutions division's gross profit percentage decreased one percentage point during the three months ended June 30, 2022. Costs in this division increased somewhat from the first quarter of 2022 to the first quarter of 2023, partially offset by a favorable product mix.
Operating Expenses
Operating expensesCalibration Solutions' gross profit percentage increased 88%1% for the three months ended June 30, 20222023 compared to the prior year period, primarily due to increased revenues on a partially fixed cost base, partially offset by increased costs for third-party contractors.
Operating Expenses
Operating expenses decreased 11% for the three months ended June 30, 20212023 compared to the prior year period, primarily as a result of lower personnel costs related to strategic cost containment activities undertaken following the Agena Acquisition and as our overall business grew.loss of Sema4.
Selling
Selling expense is driven primarily by labor costs, including salaries and commissions; accordingly, it may vary with sales levels.
Three Months Ended June 30, | Percentage | Three Months Ended June 30, | Percentage | |||||||||||||||||||||
2022 | 2021 | Change | 2023 | 2022 | Change | |||||||||||||||||||
Selling expense | $ | 10,023 | $ | 4,858 | 106 | % | $ | 8,976 | $ | 10,023 | (10 | %) | ||||||||||||
As a percentage of revenues | 20 | % | 14 | % | 6 | % | 18 | % | 20 | % | (2 | %) |
Selling expense for the three months ended June 30, 2022 increased 106%2023 decreased 10% compared to the prior year period, primarily as a result of lower personnel costs, in particular the acquisitionrealized benefits of Agena. Excluding the impactproactive cost savings efforts we initiated after the loss of Agena, selling expense increased 17% for the three months ended June 30, 2022, primarily as a result of professional services costs as we made improvements to our corporate website, as well as increased travel and tradeshow costs as we continued to resume in-person meetings and events.Sema4.
General and Administrative
Labor costs, including non-cash stock-based compensation and amortization of intangible assets, drive the substantial majority of our general and administrative expense.
Three Months Ended June 30, | Percentage | Three Months Ended June 30, | Percentage | |||||||||||||||||||||
2022 | 2021 | Change | 2023 | 2022 | Change | |||||||||||||||||||
General and administrative expense | $ | 20,212 | $ | 11,419 | 77 | % | $ | 18,060 | $ | 20,212 | (11 | %) | ||||||||||||
As a percentage of revenues | 40 | % | 33 | % | 7 | % | 36 | % | 40 | % | (4 | %) |
General and administrative expenses increased 77%decreased 11% for the three months ended June 30, 20222023 compared to the prior year period, primarily as a result of reduced personnel costs largely attributable to strategic cost savings activities following the loss of Sema4 and lower stock-based compensation expense as the performance-based restricted stock units associated with the fiscal 2022 acquisition of Agena including $2,490Bioscience, Inc. were no longer amortizing during the first quarter of amortization of intangibles associated with intangibles acquired in the Agena Acquisition. Excluding the impact of Agena, general and administrative expenses increased 33% forfiscal year 2024. Additionally, we incurred lower professional services costs during the three months ended June 30, 2022.
Excluding Agena,2023 compared to the increase in general and administrative costs for the first quarter of fiscalprior year 2023 was a result of higher stock-based compensation expense, increased labor and labor-related expenses, and costs associated with the implementation of our enterprise resource planning tool for Agena, partially offset by lower legal expenses.period.
Research and Development
Research and development expense is predominantly comprised of labor costs and costs of third-party consultants.
Three Months Ended June 30, | Percentage | Three Months Ended June 30, | Percentage | |||||||||||||||||||||
2022 | 2021 | Change | 2023 | 2022 | Change | |||||||||||||||||||
Research and development expense | $ | 5,700 | $ | 2,811 | 103 | % | $ | 4,811 | $ | 5,700 | (16 | %) | ||||||||||||
As a percentage of revenues | 11 | % | 8 | % | 3 | % | 9 | % | 11 | % | (2 | %) |
Research and development expenses increased 103%decreased 16% for the three months ended June 30, 20222023 compared to the prior year period, primarily as a resultdue the prior period purchase of the acquisition of Agena. Excluding the impact of Agena,in-process research and development coststechnology used to enhance an existing Sterilization and Disinfection Control division product offering and cost containment actions.
Nonoperating Expense, Net
Three Months Ended June 30, | Percentage | |||||||||||
2023 | 2022 | Change | ||||||||||
Nonoperating expense, net | $ | 273 | $ | 818 | (67% | ) |
Nonoperating expense, net for the three months ended June 30, 2022 increased 23% primarily as a result of our purchase of in process research and development technology that we intend to further develop in order to enhance a product offering in our Sterilization and Disinfection Control division.
Nonoperating Expense
Three Months Ended June 30, | Percentage | |||||||||||
2022 | 2021 | Change | ||||||||||
Nonoperating (income) expense | $ | 818 | 1,705 | (52 | %) |
Nonoperating expense for the three months ended June 30, 20222023 is composed primarily of interest expense and amortization of the debt discount associated with the Notes and netthe Credit Facility as well as gains and losses on foreign currency transactions. Nonoperating expenseDuring the three months ended June 30, 2023, these expenses were partially offset by a payment received from a former customer outside the normal course of business reimbursing us for costs incurred in previous periods. The reimbursement agreement was lowernot included in the first quarteroriginal sales contract with the customer.
Income Taxes
Three Months Ended June 30, | Percentage | |||||||||||
2022 | 2021 | Change | ||||||||||
Income tax provision (benefit) | $ | (3,974 | ) | $ | (577 | ) | 589 | % | ||||
Effective tax rate | 73.4 | % | (40.7 | %) | 114 | % |
Three Months Ended June 30, | Percentage | |||||||||||
2023 | 2022 | Change | ||||||||||
Income tax (benefit) | $ | (388 | ) | $ | (3,974 | ) | (90 | %) | ||||
Effective tax rate | 41.4 | % | 73.4 | % | (32 | %) |
Our effective income tax rate was (73.4%)41.4% for the three months ended June 30, 20222023 and (40.7%)73.4% for the three months ended June 30, 2021.2022. The effective tax rate for the three months ended June 30, 20222023 differed from the statutory federal rate of 21% primarily due to the share-based payment awards for employees and the effect of income generated in foreign jurisdictionsjurisdictions. The change in our effective tax rate for the first quarter of our fiscal yearthree months ended June 30, 2023 was higher than the same period in 2022is primarily due to the share based compensationlower windfall benefits on stock option exercises and the effect of income in foreign jurisdictions.
Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income. We carefully monitor these factors and adjust our effective income tax rate accordingly.
Net Income(Loss)
Net income for the three months ended June 30, 2022 varied(loss) varies with the changes in revenues, gross profit, and operating expenses (and included $7,320$7,220 and $3,432$2,968 of non-cash amortization of intangible assets acquired in a business combinationcombinations and stock-based compensation expense, respectively)respectively, for the three months ended June 30, 2023).
Market-Based Awards
The performance-based restricted stock awards granted during the three months ended June 30, 2023 included a market-based component.
Liquidity and Capital Resources
Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, cash available from our Credit Facility and our Open Market Sale AgreementSM, working capital, and potential additional equity and debt offerings. We believe that cash flows from operating activities and potential cash provided by borrowings from our Credit Facility or funds from our Open Market Sale AgreementSM, when necessary, will be sufficient to meet our ongoing operating requirements, scheduled interest payments on debt, dividend payments, and anticipated capital expenditures. We currently expect toAt our option, we may settle the Notes in shares of our common stock butor in cash, or we may re-finance theour debt, depending on conditions in the market and the share price of our common stock.
Our more significant uses of resources have historically included acquisitions, payments of debt and interest obligations, long-term capital expenditures, and quarterly dividends to shareholders. Working capital is the amount by which current assets exceed current liabilities. We had working capital of $84,000$75,682 and $76,263$75,616 as of June 30, 20222023 and March 31, 2022,2023, respectively. As of June 30, 2022,2023, and March 31, 2022,2023, we had $43,747$32,376 and $49,346,$32,910, respectively, of cash and cash equivalents. We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
As of June 30, 2022,2023, $172,500 in aggregate principal Notes waswere outstanding and $47,000$5,000 was outstanding under the Credit Facility. In July 2022,2023, we repaid $12,000 of the amount outstanding under thepaid an additional $3,500 on our Credit Facility.
In April 2022, we entered into an Open Market Sale AgreementSM pursuant to which we may issue and sell, from time to time, shares of our common stock with an aggregate value of up to $150 million.$150,000. We have not sold any shares under this agreement.
We routinely evaluate opportunities for strategic acquisitions. Future material acquisitions may require that we obtain additional capital, assume additional third-party debt or incur other long-term obligations. We believe that we have the ability to issue more equity or debt in the future in order to finance our acquisition and investment activities; however, additional equity or debt financing, or other transactions, may not be available on acceptable terms, if at all.
We may from time to time repurchase or take other steps to reduce our debt. These actions may include retirements or refinancing of outstanding debt, pursuing privately negotiated transactions, or otherwise. The amount of debt that may be retired, if any, could be material andmaterial. Retirement would be decided at the sole discretion of our Board of Directors and would depend on market conditions, our cash position, and other considerations.
Dividends
We have paid regular quarterly dividends since 2003. We declared and paid dividends of $0.16 per share during the quarterthree months ended June 30, 2022,2023, as well as each quarter of fiscal year 2022.2023.
In July 2022,2023, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on September 15, 2022,2023, to shareholders of record at the close of business on August 31, 2022.2023.
Cash Flows
Our cash flows from operating, investing, and financing activities were as follows (in thousands):
Three Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Net cash (used in) provided by operating activities | $ | (2,811 | ) | $ | 9,589 | |||
Net cash (used in) investing activities | (225 | ) | (653 | ) | ||||
Net cash (used in) provided by financing activities | (1,407 | ) | 265 |
Three Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Net cash provided by (used in) operating activities | $ | 9,939 | $ | (2,811 | ) | |||
Net cash (used in) investing activities | (270 | ) | (225 | ) | ||||
Net cash (used in) financing activities | (9,519 | ) | (1,407 | ) |
Cash flows from operating activities for the three months ended June 30, 2022 used $2,811. Of2023 provided $9,939. Net loss and non-cash adjustments totaled $11,066 for the amount ofthree months ended June 30, 2023 compared to $7,682 for the three months ended June 30, 2022. We generated $9,366 more cash used, $10,233 related to net decreasesfrom working capital accounts, $4,972 represented net loss forin the first quarter ofthree months ended June 30, 2023 partially offset by amortizationcompared to the three months ended June 30, 2022, primarily due to higher collections on trade receivables and stock-based compensation expense. Cash used in working capital during the first quarter of fiscal year 2023 included: payment of bonuses accrued at year end, higher inventory as we worklower bonus payments to manage supply chain constraints by increasing our stock of raw materials inventory, as well as payments made for prepaid insurance policies and other annual renewals. In the first quarter of fiscal year 2022, changes in operating assets and liabilities represented $1,430 as our cash bonus paid was smaller, and more receivables were collected during the quarter.employees. Cash used in investing activities was lowerfor the three months ended June 30, 2023 approximated cash used in investing activities during the three months ended June 30, 2022, compared to the three months ended June 30, 2021, due to less purchasesas we purchased similar values of property, plant, andcapital equipment during the period.in both periods. Cash used by financing activities primarily resulted from $2,000$8,000 repaid on our Credit Facility during the quarter.three months ended June 30, 2023 compared to $2,000 for the three months ended June 30, 2022.
Contractual Obligations and Other Commercial Commitments
We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. For a description of our contractual obligations and other commercial commitments as of March 31, 2022,2023, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2022,2023, filed with the Securities and Exchange Commission on May 31, 2022.30, 2023.
On a consolidated basis, atas of June 30, 2022,2023, we had contractual obligations for open purchase orders of approximately $24,081$17,347 for routine purchases of supplies and inventory, which are payable in less than one year. Open purchase orders continue to increase as we take proactive steps to mitigate risks in supply by increasing our orders of certain critical raw materials.
Off-Balance Sheet Arrangements
As part of June 30, 2022,the Belyntic acquisition, we had no off-balance sheet arrangements or obligations.agreed to pay $1,500 to the sellers if contractually specified patents related to the technology purchased are issued. We believe it is probable that the patents will be issued and that we will pay the sellers in full within 36 months following the acquisition date.
Critical Accounting Policies and Estimates
Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. These estimates are based on historical experience and various other factors that we believe to be appropriate under the circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended March 31, 2022,2023, in the Critical Accounting Policies and Estimates section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Although we believe that our estimates, assumptions, and judgements are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our reporting currency is U.S. dollars,Foreign Currency Exchange Rates
We face exchange rate risk from transactions with customers in countries outside the United States and from intercompany transactions between affiliates. Transactional exchange rate risk arises from the purchase and sale of goods and services in currencies other than the functional currency of eachthe applicable subsidiary. We also face translational exchange rate risk related to the translation of financial statements of our material foreign operations into U.S. dollars, our functional currency. Costs incurred and sales recorded by subsidiaries is its respective local currency. Our operations include activitiesoperating outside of the United States are translated into U.S. anddollars using average exchange rates effective during the respective period. As a result, we have currency risk onare exposed to movements in the transactions in otherexchange rates of various currencies and translation adjustments resulting from the conversion of our international financial results intoagainst the U.S. dollar. We faceOur Biopharmaceutical Development division is particularly susceptible to currency exposures in our global operations as a result of various factors including intercompany currency denominated loans, selling our products in various currencies, purchasing raw materials and equipment in various currencies, and tax exposures not denominated in the functional currency. These exposures have increased as we have continued to expand internationally, including the acquisition of Gyros Protein Technologies Holding AB, which conductssince it incurs a substantial portion of its business expenses in Swedish Krona, while most of the division's revenue contracts are in U.S. dollars and euros. Therefore, when the acquisitionSwedish Krona strengthens or weakens against the U.S. dollar, operating profits are increased or decreased, respectively. The effect of Agena, which conducts a portion of its businesschange in euros and a portion in Chinese Yuan. Fluctuations incurrency exchange rates haveon our international subsidiaries' assets and may continue to adversely affect our resultsliabilities is reflected in the accumulated other comprehensive income component of operations, financial position, and cash flows. We do not hedge exposure to exchange rates.stockholders’ equity.
Interest Rates
Our Credit Facility bears interest at either a base rate or a EurodollarSOFR rate, plus an applicable spread. Based on our interest rate and the balance currently outstanding against our lineas of credit,June 30, 2023, we estimate that if interest rates increased by 75 basis points,1 percentage point, we would incur approximately $353$50 of additional interest expense per year.
Inflation Risk
Inflation generally impacts us by increasing our costs of labor, materials, and freight. The rates of inflation experienced in recent years have not had a significant impact on our financial statements as inflationary cost increases have been offset by annual price increases. However, any price increases imposed may lead to declines in sales volume if competitors do not similarly adjust prices. We cannot reasonably estimate our ability to successfully recover any impact of inflation cost increases into the future.
Other
We have no derivative instruments. We have minimal exposure to commodity market risks.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As of June 30, 2022,2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.report, due to a material weakness identified in the fourth quarter of fiscal year 2023 that has not yet been remediated. The material weakness is described further below.
Nevertheless, based on the performance of additional procedures by management designed to ensure reliability of financial reporting, our management has concluded that, notwithstanding the material weaknesses described below, the consolidated financial statements, included in this Report on Form 10-Q, fairly present, in all material respects, our financial position, results of operations, and cash flows as of and for each of the periods presented, in conformity with U.S. GAAP.
Prior Year Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As disclosed in Part II Item 9A. "Controls and Procedures" in our annual report on Form 10-K for the year ended March 31, 2023, during fiscal year 2023 we identified two material weaknesses in internal controls:
● | Fair Value Calculations - Management's review controls over fair value calculations including Management's preliminary valuation of the Belyntic Acquisition were insufficient. Specifically, Management failed to utilize resources with an appropriate level of knowledge and expertise in performing and reviewing the fair value calculations including the preliminary Belyntic valuation. |
● | Goodwill Impairment Assessment - Management's review controls over the qualitative assessment of goodwill impairment were insufficient to identify potential impairment triggers. |
Remediation Status for Material Weaknesses in Internal Control Over Financial Reporting
Beginning during the three months ended June 30, 2023 we implemented our previously-disclosed remediation plans:
● | Fair Value Calculations - We obtained the services of a knowledgeable third-party valuation specialist to perform the fair value calculations for the Belyntic acquisition. |
● | Goodwill Impairment Assessment - Members of Management with requisite knowledge formally performed and reviewed a quarterly analysis over potential impairment triggers. |
As a result of our control activities, we have concluded that the material weakness regarding fair value calculations has been remediated as of June 30, 2023. An insufficient number of quarters has elapsed to affirm remediation of the material weakness regarding goodwill impairment assessments; we will continue to perform formal quarterly impairment trigger analyses in future periods. We will likewise continue to utilize a valuation specialist with the requisite knowledge to perform valuations for all future acquisitions of businesses, as such acquisitions occur.
Changes in Internal Control overOver Financial Reporting
The Agena Acquisition was completed on October 20, 2021, andOther than the financial results of Agena are included in our Condensed Consolidated Financial Statements as of March 31, 2022 and for the period then ended, and as of June 30, 2022 and forremediation measures discussed above, during the three months then ended. During the time since acquisition, we have assessed the control environment of Agena and made certainended June 30, 2023 there were no changes to Agena'sour internal controlscontrol over financial reporting including design changes(as defined in Rule 13a-15(f) under the Exchange Act) that were required as we brought Agena ontohave materially affected or are reasonably likely to materially affect our enterprise resource planning tool. We now consider Agena to be included in the scope of our assessment of internal controlscontrol over financial reporting.
See Note 11. “Commitments and Contingencies” within Item 1. Financial Statements for information regarding any legal proceedings in which we may be involved.
During the first quarter of fiscal yearthree months ended June 30, 2023, there were no material changes from the risk factors described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended March 31, 2022.2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 7, 2005, our BoardIssuer Purchases of Directors adopted a share repurchase plan which allowsEquity Securities
The following table provides information about the Company's purchases of equity securities for the periods indicated:
Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs | |||||||||||||
April 2023 | - | - | - | 162,486 | ||||||||||||
May 2023 | 10 | 188.84 | - | 162,486 | ||||||||||||
June 2023 | 5,250 | 135.14 | - | 162,486 | ||||||||||||
Total | 5,260 | 135.25 | - | 162,486 |
(1) | Shares purchased during the period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock awards during the period. |
(2) | On November 7, 2005, our Board of Directors adopted a share repurchase plan which allows for the repurchase of up to 300,000 of our common shares; however, no shares have been purchased under the plan in the last three fiscal years. This plan will continue until the maximum is reached or the plan is terminated by further action of the Board of Directors. |
On May 30, 2023, Chief Executive Officer Gary Owens entered into a written plan for the purchase or sale of securities of the registrant intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) (“Rule 10b5-1 trading arrangement”). The trading plan is effective through April 26, 2024. The trading plan contemplates that Mr. Owens may sell up to 300,000 of our common11,950 shares of which 162,486 have been purchasedMesa Labs' common stock, subject to date; however, no shares have been purchased under the plan in the last three fiscal years. This plan will continue until the maximum is reached or the plan is terminated by further action of the Board of Directors. During the three months ended June 30, 2022, 2,187 shares with a weighted average price paid per share of $188.67 were retained by the Company to settle employee withholding tax liabilities.certain trading conditions.
α Indicates a compensatory arrangement
* Furnished herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MESA LABORATORIES, INC.
(Registrant)
DATED: August | BY: | /s/ Gary M. Owens. Gary M. Owens Chief Executive Officer |
DATED: August | BY: | /s/ John V. Sakys John V. Sakys Chief Financial Officer |